Browsing All Posts filed under »Academic Research«

What Do Stock Buybacks Mean?

February 7, 2011


Recent research by Jacob Oded, Azi Ben-Rephael, Avi Wohl of Tel-Aviv University considered the matter by looking at share-price performance following buy-backs, the findings of which were published in the paper “Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures.”   They learned the following: Smaller S&P 500 firms repurchase less frequently […]

Behavioural Finance: Elephant Traps For Investors

February 1, 2011


“Temperament is… important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I’ve seen a lot of very smart people who have lacked these virtues.” – Warren Buffet, Berkshire Hathaway letter to shareholders, 2006 Attempting to apply a mechanical model to investing often fails […]

Prudent Portfolio Diversification

January 28, 2011


Economists and businessmen are often known to say “there is no such thing as a free lunch”; however, there is one exception to this rule: portfolio diversification.  By spreading his wealth across a number of assets an investor is able to reduce portfolio risk at no cost and with no loss of expected portfolio return. […]

Common Errors In Company Valuation

January 20, 2011


The following is a list of common corporate valuation and investment errors identified by Pablo Fernandez (University of Navarra – IESE Business School) in a paper entitled “80 Common Errors in Company Valuation“. 1. Errors in the discount rate calculation and concerning the riskiness of the company A. Wrong risk -free rate used for the […]

Why Only Full-blown Political Union Can Save the Euro

November 18, 2010


The recent financial problems plaguing peripheral members of the Eurozone such as Greece, Ireland and Portugal, are seen by some as the unfortunate consequences of the banking crisis and consequent recession, by some as just desserts for profligate government tax-and-spend policies over the previous decade, and by others as unfair punishment being meted-out by the […]

Which Corporate Governance Factors Impact Shareholder Returns?

November 15, 2010


Lucian Bebchuk, Alma Cohen and Allen Ferrell of the John M. Olin Center for Law, Economics and Business at Harvard University published a study in 2004 entitled What Matters in Corporate Governance? They studied twenty-four different governance provisions and tested for correlations with firm value and stockholder returns.  They found that only six corporate governance […]

Applying Michael Porter’s Five Forces to Equity Investing

November 4, 2010


While some people see equity investing as a technical exercise that involves interpreting price charts and others see it as a purely quantitative process that involves estimating the value of the company based upon its share price near-term earnings potential compared to competitors, I take the view that making successful long-term investments necessitates an understanding […]

Why Banking Crises are Inevitable

October 29, 2010


It has long been my view that asset-price bubbles and the financial crises that often follow are intrinsic components of the capitalist system that cannot be avoided.  Thanks to Anjan Thakor at Washington University in St Louis, we can now understand why crises are inevitable within the banking system.  In “Are Financial Crises Inevitable?” he […]

How Company Chief Executives Get Lucky with their Stock Option Grants

September 30, 2010


The cynic within me has always believed that company board remuneration sub-committees are always working hard to find excuses to maximise the amount of shareholders’ cash awarded to the executives (and to themselves) in the form of salaries, bonuses, pensions, option-grants, and various parachute payments to protect the management teams’ wealth when things happen to […]

Why I Don’t Invest In Initial Public Offerings

September 28, 2010


No event in financial markets seems to get investors (institutional and retail), stockbrokers, bankers and journalists excited in the same way as a new initial public offering (“IPO”). The announcement of a new IPO is always greeted by a frenzy of analysis and commentary, with the prospectus being poured-over in detail and much being discussed […]